Organised gold jewellery retailers in India are set to achieve a revenue growth of 17-19% in fiscal 2025, driven by higher realisations from elevated gold prices, according to a report by CRISIL Ratings. However, volume is expected to remain steady.
To address the challenge of moderated demand amid rising gold prices, retailers are likely to increase their marketing and promotional efforts this fiscal year. Consequently, operating profitability may see a slight dip of 20-40 basis points on-year, settling at 7.7-7.9%.
Working capital requirements are also projected to rise due to increased inventory from higher gold prices and the addition of new stores. Despite these challenges, credit profiles are expected to remain stable.
CRISIL Ratings based its analysis on 54 gold jewellery retailers, representing approximately 32% of the organised jewellery sector’s revenue. The organised sector accounts for just over one-third of the market, with the remaining portion comprising the highly fragmented unorganised sector.
During fiscal 2024, domestic gold prices surged by around 15%, reaching approximately Rs 67,000 per 10 grams by the end of March 2024 and further rising to about Rs 73,000 in April 2024. This increase reflects gold’s status as a safe investment amidst geopolitical uncertainties, favored by both central banks and consumers.
“Apart from ramping up branding and marketing expenditure, retailers are likely to offer higher discounts to buyers while expanding product designs to attract customers despite higher gold prices. We expect a shift towards lower carat gold jewellery and continued promotion of gold exchange programmes to support volume,” stated Aditya Jhaver, Director, CRISIL Ratings.
The report predicts that the share of gold exchange schemes will rise, making up nearly a third of the overall volume for most large retailers.
Furthermore, organised retailers are expected to continue gaining market share at the expense of unorganised ones, driven by changing consumer preferences and store expansions into tier-I and -II cities. Post-pandemic, large jewellery retailers have seen strong double-digit growth in store expansions, though this growth rate may moderate to 10-12% in fiscal 2025 due to stable volume levels.
Elevated gold prices will necessitate replenishing gold inventory at higher costs. This, combined with inventory needs for new stores, will increase working capital debt. Established gold jewellery retailers have seen improved access to bank funding in recent years, as evidenced by steady gross bank credit to the sector, a trend expected to continue in the medium term.
“Stronger cash generation, due to healthy revenue growth and adequate profitability, will keep credit profiles of organised gold jewellery retailers stable, despite an expected rise in working capital borrowings. Debt metrics will remain comfortable in fiscal 2025, moderating only slightly from fiscal 2024 levels, with total outside liabilities to tangible net worth and interest coverage ratios expected at 1.0-1.1 times and 8.0-8.2 times, respectively,” noted Himank Sharma, Director, CRISIL Ratings.
Key factors to monitor, according to CRISIL, include sharp volatility in gold prices, changes in government regulations and import duties on gold, and shifts in consumer sentiment.
